Prime Minister George Papandreou is seeking to form a government of national unity that will enable Greece to convince international leaders to resume aid before the nation runs out of funds next month.
Papandreou met with President Karolos Papoulias today as pressure mounts on the 59-year-old to step aside after he was forced to cancel a referendum that may have led to Greece being ejected from the euro. The premier won a confidence motion early this morning after pledging to disaffected members of his ruling Pasok party that he would not stay on.
Papandreou proposed “contributing definitively to creating a government of wider cooperation with the main goal of guiding legislation and anything else related to the historic Oct. 26” agreement with international lenders, the premier told reporters after meeting the president in Athens today. Last month’s accord “is a prerequisite for our remaining in the euro.”
Papandreou’s offer capped a tumultuous week that started with him securing a second bailout from the European Union then roiling markets by unilaterally deciding to put the terms of that rescue to the Greek people in a vote. The premier must heal political divisions to secure an agreement on the aid package and avert the first default by a European Union nation.
“Papandreou, by bringing things to a head, has basically, without expecting this to happen, sacrificed his own political career,” Sassan Ghahramani, chief executive officer of SGH Macro Advisors, said on Bloomberg Television’s “Street Smart.” “The price for that has been that the opposition party is now willing to cooperate with a transitional government if it comes into place and show a more united front toward the EU and IMF.”
Papandreou won the vote in the 300-member parliament by 153 votes to 145, Parliament Speaker Filippos Petsalnikos said in remarks carried live on state-run Vouli TV today. The premier will call a meeting of ministers tomorrow after talks today with Finance Minister Evangelos Venizelos, he told reporters today.
European stocks declined for the first week in six and the euro fell the most in two months versus the dollar to $1.3792, its first weekly loss since the five days ended Oct. 7, amid the Greek turmoil and after a Group of 20 summit in Cannes, France, failed to agree on increasing resources for the International Monetary Fund.
Greek two-year bond yields climbed above 100 percent for the first time yesterday. German 10-year bonds posted their biggest weekly advance on record after European leaders admitted that Greece may exit the currency union following Papandreou’s referendum decision.
Spanish debt slid and Italy’s 10-year bond yield hit a record yesterday after Prime Minister Silvio Berlusconi refused IMF aid and accepted the fund’s monitoring of his austerity drive. Italy’s 10-year yield of 6.37 percent puts the euro region’s third-largest economy close to the 7 percent level that drove Greece, Ireland and Portugal to seek bailouts.
European banks including BNP Paribas SA and ING Groep NV said in earnings reports this week that they’d cut holdings of bonds issued by Europe’s most-indebted nations.
Royal Bank of Scotland Group Plc (RBS) said it reduced its “total exposures to central and local governments in Portugal, Greece, Italy, Spain” and Ireland in the third quarter to 1.1 billion pounds ($1.8 billion) from 4.6 billion pounds. The bank also wrote down the value of its Greek sovereign holdings to 37 cents on the euro, Chief Financial Officer Bruce Van Saun said in a Bloomberg Television interview yesterday.
Venizelos told lawmakers that the outline of a government agreement needs to be in place before a meeting with European finance ministers on Nov. 7.
“The country risks losing its autonomy, its level of life and the international context is becoming more stifling every day,” Venizelos said. “Society must at last be able to breathe and on Monday, the country must be represented in a credible and reliable way at the Euro group.”
Antonis Samaras, leader of the main opposition New Democracy party, reiterated his proposal for Papandreou to step down in favor of a temporary caretaker government to secure financing for Greece, followed by elections.
“Greece needs a government with a strong mandate,” Samaras said today in Athens in comments televised live on state-run NET TV. “New Democracy wants a return to normality for the country and that can only happen with elections.”
Opposition LAOS party leader George Karatzaferis, who controls 16 seats in parliament, will propose a new prime minister as a condition for forming a unity government, according to the Athens News Agency.
Papandreou reinstated Louka Katseli, a former labor minister, to the ruling party’s parliamentary group after she cast a vote supporting the government. Her return brings Papandreou’s majority back to 153.
The Communist Party of Greece, the third-largest party with 21 seats, and Syriza, which has nine, also rejected the overture from Papandreou, and called for elections. “I won’t bow to blackmail,” Communist Party leader Aleka Papariga said.
The government will need the backing of 180 lawmakers to secure approval for Greece’s second aid package that was negotiated in Brussels last month. Disbursement of funds was halted after Papandreou’s call for a referendum was opposed by German Chancellor Angela Merkel and French President Nicolas Sarkozy.
“In the eyes of Angela Merkel and Nicolas Sarkozy he doesn’t have much credibility left,” Jacob Kirkegaard, research fellow at the Peterson Institute for International Economics, said in a Bloomberg TV interview. “Greece needs to have a new face to the rest of the world.”
Papandreou, a graduate of the London School of Economics and former foreign minister, had survived a confidence vote in June called to rally support for austerity measures demanded by international lenders in return for a continuation of a 2010 bailout, the first for an EU nation. The EU and International Monetary Fund agreed to provide 110 billion euros ($135 billion) in May last year in return for cuts in government spending and public sector jobs.
His referendum plan triggered a suspension in assistance by EU leaders less than a week after they’d approving a second rescue that pledged a further 130 billion euros and wrote down the value of Greek debt by 50 percent.
“The IMF will almost certainly release the sixth tranche of its bailout and we can now expect Greece to avoid involuntary default before Christmas,” Dominic Rossi, global chief investment officer for equities at Fidelity International Ltd. said in an e-mail. “However, in the long run, fundamental problems persist and serious questions still remain on whether Greece will be able to deliver on its commitments.”
The surprise referendum announcement triggered the biggest two-day slide in the MSCI World Index in almost three years and sent spreads on French, Greek and Italian bonds over bunds to euro-era records. France now pays 123 basis points more than Germany to borrow for 10 years.
St. Paul, Minnesota-born Papandreou, whose father formed the party at the end of Greece’s military rule, had said he was prepared to lose his job if it meant pushing through austerity measures needed to fix Greece’s finances. The nation’s debt is expected to balloon to 162 percent of gross domestic product this year.
“I would be very surprised if Greece doesn’t default in the next few weeks,” said Lex Van Dam, who manages $500 million in assets at Hampstead Capital LLC in London. “I cannot see how the Europeans will pay the next tranche knowing that the Greeks will try and renegotiate the rest of the original Oct. 26 package once this payment has been made.”
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